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ANALYSIS OF THE SOUTHEAST ASIAN CRISIS OF 1997
By Jose Maria Sison
Founding Chairman, Communist Party of the Philippines
Contribution to the 11th International Communist Seminar
2-4 May 2002 Brussels, Belgium

I convey warmest greetings of comradeship and revolutionary solidarity to the Workers’ Party of Belgium and all the delegations in the 11th Seminar.

I thank the Workers’ Party of Belgium for inviting me to speak on the Southeast Asian crisis of 1997 in connection with the global capitalist crisis.

At the outset, let me make it clear that imperialism as overdeveloped and moribund capitalism and the Southeast Asian social economies as underdeveloped neo-colonial appendages of imperialism are both in chronic crisis.

Thus, by the phrase Southeast Asian crisis of 1997, I refer to a new plunge, a new level of aggravation and deepening of the chronic crisis.

I propose to discuss the background, character and course of the crisis and consequences up to the present.

Background of the Crisis

Since the Great Depression in the 1930s, the monopoly bourgeoisie and their ruling politicians had adopted the Keynesian policy stress on fiscal measures for the purpose of pump-priming the economy through public works projects, increasing purchasing power among the people and reviving consumer demand.

The Keynesian policy stress subsequently came to be understood in a larger sense as state intervention in deploying public funds and generating jobs in order to overcome the conditions of bust, guide war-time production, conduct the Cold War, reconstruct the economies of Germany and Japan, react to the challenge of socialism and "aid the development" of the underdeveloped countries.

In the 1970s, the US policy makers were at a loss in solving the phenomenon of stagflation. Stagnation ensued from attempts to solve the problem of inflation and inflation ensued from attempts to solve the problem of inflation. After abandoning the gold standard in 1970 and boasting that the US had its high productive capacity to guarantee its currency, the US policy makers did not pay adequate attention to the severe recession of 1974-75 as a crisis of overproduction, arising from the full reconstruction of Germany and Japan and the growing economic competition among the imperialists.

They overlooked the fact that after making economic concessions and giving market accommodations to its allies in exchange for their support in the anticommunist crusade, the US had undermined its own manufacturing capacity in tradeable goods. They also did not take into account the ever-rising military production and military expenditures, including those for overseas military forces and wars of aggression. All these were generating inflationary cost-push demand in the US economy.

The rationale for shifting from a Keynesian to a neoliberal policy stress came from the antiworker and antipeople position that rising wage levels and government social spending were the causes of stagflation. While blaming and insulting the working class for supposedly being parasitic and overstating the social pretenses of the imperialist state, the US policy makers sought to make more public resources available to the monopoly bourgeoisie and expressed a preference for using monetary measures rather than fiscal measures for managing any disequilibrium in the economy.

The US Federal Reserve Board, under board chairman Volcker, paved the way for the official adoption of the neoliberal policy stress under the Reagan administration by prescribing high interest rates, rising to 19 percent in the period of 1979-82. These attracted foreign investments in US stocks and bonds and caused capital flight from Latin America and other debtor countries to the imperialist countries, especially the US.

Under the Reagan administration, the US used foreign funds to finance a high level of consumer spending and accelerated costly production of high-tech weaponry and to cover the resultant trade and budgetary deficits. Thus the US became a net debtor in 1985 and the biggest debtor in the world by 1989.

Upon the shift from the Keynesian to the neoliberal policy stress under the direction of the US, the multilateral agencies like the IMF, World Bank and GATT-WTO proclaimed that official "development" credit to the underdeveloped countries from specific imperialist states and multilateral lending agencies was to be decreased and that the underdeveloped countries would have to swim or sink under the terms of "free market" globalization.

By this time, the imperialist creditors had already overburdened the third world countries with loans used mainly for infrastructure-building and enhancing raw-material production for export. It was time for the multilateral firms and banks to take over the natural resources and businesses in the heavily indebted countries amidst the growing crisis of overproduction in raw materials.

The IMF dictated structural adjustment programs which imposed austerity measures, the conversion of foreign debt to takeover equity in selected enterprises or claims to the natural resources of the debtor countries, the free flow of capital, liberalization of trade and investments, privatisation and deregulation, conversion of unpaid private debts into public debts and prioritisation of debt-service payments by client states.

The policy shift was to a worse form of neocolonialism, to an openly more brutal and more rapid way for capital to exploit labor and for monopoly capitalism to plunder the resources of the proletariat and people of the world. The main objective of the monopoly bourgeoisie was to rationalize in the name of the "free market" the use of a hierarchy of corporations and a hierarchy of states in order to serve and aggrandize the monopoly bourgeoisie.

Amidst the economic and social devastation of the third world countries, as a result of the crisis of overproduction in raw materials and crushing debt burdens, the imperialists and their propagandists celebrated the so-called four tigers of Asia (Taiwan, South Korea, Hongkong and Singapore) as the success stories for emulation by the third world countries.

They obfuscated the fact these "old tigers" had benefited from state protection of domestic investments and special accommodation of their exports in the large US consumer market all in consideration of their being in the frontline against China and North Korea in the 1970s. In the 1980s, the US and its camp followers were flattering China and the Southeast Asian countries, Thailand, Malaysia and Indonesia, as the "new tigers" of Asia.

While the rest of the third world was in economic shambles, the US itself drummed up Japan and the old and new "tigers" as the stalwarts of the East Asian "economic miracle" and its most active partners in making East Asia the growth area of the remaining decades of the 20th century and the entire 21st century.

Indeed, East Asia was a promising market, with a third of the world’s population or two billion people, 1.5 billion in Northeast Asia and 500 million in Southeast Asia. The US eyed this market as the complement to the US market and as the big base for economic growth to make the so-called Pacific century. The Asia-Pacific countries already had a share of more than 50 percent of the world’s trade flow and this was expected to increase further.

The US monopoly bourgeoisie was confident of making East Asia grow and, at the same time, of dominating it on the assumption that Japan would continue to follow US dictates within the bilateral framework of the US-Japan security treaty as well as within the multilateral framework of the Group of 7, OECD, IMF, World Bank, GATT-WTO, Asian Development Bank and the Asia-Pacific Economic Cooperation (APEC). The US-Japan combine was expected to keep China and the Association of Southeast Asian Nations (ASEAN) at lower levels of development and in economic subordination.

In imitating the "old tigers", the agrarian countries of Southeast Asia, especially Thailand, Malaysia and Indonesia, were supposed to go first for the production of such export-oriented, low value-added semimanufactures as garments, semiconductors, shoes, toys and the like on top of the traditional agricultural and mineral exports. The presumption was that savings drawn from the export income could be used for developing basic industries as did Taiwan and South Korea.

However, under the policy regime of "free market" globalization, the IMF would not allow the states of the Southeast Asian countries (unlike in the case of Japan, South Korea and Taiwan in previous decades) to adopt a policy of industrial development and provide protection and public funds for such a policy.

Furthermore, the semimanufactured exports of these countries had no assured market in the US, of which the old tigers in earlier decades had been assured to the extent of at least 30 percent. Instead the "new tigers" and wannabes like the Philippines were met with US market restrictions on their garments exports in 1994 and semiconductor exports in 1996.

Within East Asia, China took the most of foreign direct investments for private construction and for the production of the export-oriented semi manufactures. In fact, it took more than one-third of the 25 percent that went to the "emerging markets" out of the total flow of global direct investments in 1995.

The potential for a serious crisis of overproduction in export-oriented semimanufactures was high in the course of competition between China and Southeast Asia. Having a much bigger and far cheaper pool of labor, especially after the devaluation of its currency in 1994, China could easily win the competition. It did trounce its Southeast Asian competitors before it would itself be bedevilled by its own buildup of excess production.

Regardless of the competition with China and other export-oriented producers of semimanufactures elsewhere in the world, the Southeast Asian countries had their own distinctively backward national economies and trade patterns. Their own kind of export products, raw materials and semi manufactures, kept their export income well below their import expenditures.

The import-dependent character of the export strategy generated rising trade and current accounts deficits. Higher export volumes of low value-added goods in fact led to higher import volumes of high value-added goods, machinery and intermediate products, which in turn led to higher trade deficits.

As far as the imperialists and financial institutions were concerned, the thrust of "free market" globalization in East Asia was to turn the countries in the region into "emerging markets" (no longer "newly industrializing countries" as previously drummed up). Such countries incurred widening trade deficits and/or accounts deficits but were allowed to borrow foreign funds for importing equipment and components for export-oriented manufacturing, private construction and luxury items for the upper class and the upper middle class (cars, home appliances, computers, telecom gadgets, and the like).

The US and its imperialist allies had pushed the liberalization of capital flows and trade. The ever-growing trade and/or current accounts deficits were covered by inflows of foreign direct investments and speculative portfolio investments. Indonesia and Malaysia had trade surpluses because of their oil exports, on top of their other exports. Nonetheless, they were faced by growing deficits in their current accounts.

The Philippines had growing trade deficits. These accounted largely for its current accounts deficits, aggravated of course by debt-service payments. Thailand, like the Philippines, also had growing trade and foreign accounts deficits. However, its current accounts deficit was far larger than that of the Philippines. Thus, Thailand became more vulnerable as a target of currency speculation.

The foreign multinational firms and local big comprador firms went on a splurge from year to year, taking short-term loans to pay for debt service and finance long-term projects and attracting investors to engage in speculative short-term trading in stocks and derivatives. The inflow of short-term capital bloated the value of the Southeast Asian currencies and stimulated imports.

The governments of Southeast Asia had been besieged not only by growing trade and current accounts deficits but also by budgetary deficits. Insufficient tax revenues pushed these governments to sell off state assets and thereby earn non-renewable revenues. In constant desperation, they floated public bonds or treasury bills, bearing fantastically attractive interest rates, as high as 35 percent. These became delectable targets for speculators.

The total capital flow to East Asia in 1996 alone (just before the outbreak of the Southeast Asian crisis) amounted to USD 156.8 billion, 3 times higher than the amount in 1990. At least three-fourths of these came as speculative capital rather than as direct investments. The outstanding loans from the banks of imperialist countries to China, South Korea, Taiwan, Malaysia, Indochina and the Philippines amounted to USD 338.6 billion, twice the level of 165.2 billion in 1993.

The share of Japan in the capital market of East Asia as a whole and Southeast Asia in particular (especially Thailand, Philippines, Malaysia and Indonesia) amounted to 35.4 percent and 43 percent, respectively. In contrast, the US had a share of only 6.3 percent and 10.3 percent respectively. The European Union countries accounted for the rest.

Cleverly, the US took far less lending risks than Japan and the European Union countries. It concentrated on competing with them in the sale of cars and other basic industrial products and on taking a clear lead in the sale of high-tech equipment, financial services, military supplies, entertainment, pharmaceuticals, food and beverages.

While encouraging Japan and the European Union to ante up huge amounts of loans to Southeast Asian countries, the US waited out the 1997-98 financial meltdowns in order to be able to buy bankrupted firms of its choice in the whole of East Asia, including Japan.

The Southeast Asian Crisis of 1997

The currency and financial crisis of Southeast Asia broke out on July 2, 1997 when Thai officials devalued the baht by more than 15 percent, following a weeklong selloff by international currency speculator. Other Southeast Asian currencies, the Philippine peso, the Malaysian ringgit and the Indonesian rupiah all declined sharply. In less than a month, devaluations reached 32 percent.

The Southeast Asian crisis sent shock waves on a global scale. On 15 August, the New York stock exchanges saw the largest one-day fall since the 1987 crash. Massive losses also occurred in the Frankfurt, Paris and London exchanges. The Hongkong stock exchange fell by 15 percent. The Japanese bond market also plunged.

Under the auspices of the IMF, the international banks and a number of governments approved a USD 17.2 billion rescue package to prop up the Thai baht. This had been the largest bailout since the 1995 crisis of the Mexican peso. But it was not enough to stabilize the currency. The fund was immediately depleted by the claims of the international creditor banks and private financial firms in a continuing surge of currency speculation.

The crisis rapidly spread to the "old tigers" in October. The Singapore dollar sank to a 40-month low against the US dollar. The South Korean won also fell amidst colossal business bankruptcies. By mid-October, the Southeast Asian currencies further dropped by more than 35 percent. Big losses reaching 40 percent of values occurred in the stock markets from July onward. The Philippine stock market declined by about 41 percent, with losses amounting to USD 21 billion.

On 24 October, the Hongkong stock market crashed. Mutual fund managers and pension funds sold off Hongkong blue chips. The Dow Jones plummeted to a level lower than the crash a couple of months earlier. It experienced the worst one-day fall in its entire history.

As October ended, Thailand and Indonesia were begging for IMF rescue packages. The IMF pledged a USD 33 billion package for Indonesia and ordered the Indonesian government to shut down 16 insolvent banks and stop food and fuel subsidies.

In November, the currency crisis grew worse, with the Japanese yen falling further against the dollar after the collapse of a major securities firm. The South Korean won depreciated. The South Korean government had to buy bad loans from banks and initially pleaded to the IMF for an emergency loan of at least USD 20 billion.

Ultimately, the IMF organized a total rescue package of USD 120 billion, with Southeast Asia, chiefly Indonesia and Thailand, receiving USD 63 billion and South Korea, 57 billion. The US had rejected the proposal of Japan to organize an Asian monetary fund for dealing with the financial crisis in Asia. It favored the use of the IMF, World Bank and the Asian Development Bank for deploying the bailout funds in order to assure US banks and investment firms of priority payments and the best opportunities to make acquisitions in the fire sale of Asian assets.

As it appeared so conspicuously, the crisis in Southeast Asia may be described as a currency and financial crisis. It occurred so abruptly in a world of free capital flows and private currency transactions amounting to USD 1.3 trillion daily at electronic speed, beyond the control of central banks. It was characterized by drastic currency falls, the exhaustion of international reserves, sharp stock market declines, capital flight and pleas for IMF rescue packages.

All these flowed from the fundamental character, internal laws of motion and structural problems of the economies of Southeast Asia. It is necessary to look comprehensively and profoundly into the crisis because fragmentary and shallow views abound to obscure the causes of the crisis.

Prime minister Mahathir of Malaysia blamed George Soros and other hedge fund operators for the crisis as he adopted capital controls to stave off the outflow of foreign exchange. The US and IMF authorities emphasized the role of so-called crony capitalism to explain the crisis and obfuscate the far bigger responsibility of the foreign monopoly capitalists and their collaboration with the high bureaucrats of the big comprador and landlord classes.

Indeed, the high bureaucrats and their economic superiors and cronies among the big compradors and landlords had a big role in causing the financial crisis. But their role cannot be any bigger than that of the imperialist states, the IMF, World Bank and GATT-WTO and the multinational firms and banks that hold the Southeast Asian economies captive and determine their role in an international division of labor that prevents their balanced development.

The Southeast Asian economies are basically agrarian, with varying amount of import-dependent industry. They are still heavily dependent on raw-material exports (agricultural and mineral) plus the low value-added semimanufactures. Because of underdevelopment, they are also dependent on the import of so many kinds of consumer and producer goods. Their export income is never enough to pay for their imports. Thus, they sink more and more into foreign indebtedness and become more susceptible to the dictates and profit-taking of the imperialists.

In such countries as Thailand, Malaysia and the Philippines, semimanufactured exports like semiconductors and garments may constitute more than 50 percent of exports. But these are produced by flotsam enterprises that actually yield very low net export income because of the high-import costs of equipment and components for semimanufactures.

The imperialists have dictated the terms of "free market" globalization on the Southeast Asian client-states. These have been told to strive for "emerging-market" status rather than clamor for "newly industrializing" status of their economies. As "emerging markets", the Southeast Asian economies are to earn as much as they can from their limited range of exports, and to avail themselves of commercial loans, direct investments and speculative capital to get the funds for their import payments.

Imperialist policy makers and propagandists nowadays avoid paying lip service to industrial development as the goal of any underdeveloped country. The development of any underdeveloped country is supposed to be left to the free play of private enterprise and the market. The imperialists blatantly discourage state-directed marshalling of the financial and other economic resources for industrial development. (Only the imperialist-funded NGOs, acting as propaganda rearguards of the imperialists, prate much about "environment-friendly, sustainable economic development" as the imperialists themselves prefer to talk about "free market" globalization rather than "development".)

To conjure the illusion of development, the imperialists (especially Japan) made available funds for private construction (hotels, golf courses, office towers, upscale housing and the like) in addition to funds for semimanufacturing enterprises. When the Southeast Asian economies experienced sharp declines in export income or big rises in trade deficits, they became prone to taking short-term credit for private construction projects. The boom in private construction served for a while until 1997 to conceal the economic decline and to stimulate some amount of domestic cash flow and consumer demand.

It was some kind of neoliberal "pump-priming" if an analogy may be made to the Keynesian pump-priming through public works. But certainly, the boom in private construction did not redound to any public benefit because it was financed by short-term credit and served narrowly the upper and the upper-middle classes. In the end, there was an overproduction of commercial and residential units, which the intended wealthy buyers could not absorb. For instance, Bangkok alone had more than USD 20 billion worth of vacant units in 1997.

The Southeast Asian countries most devastated by the financial crisis of 1997 were those that opened most to the free flow of foreign capital and allowed private borrowers to take short-term capital to engage in real estate speculation and in the unequal exchange of low value-added exports and manufactured imports of higher value, including luxuries.

The free flow of capital was meant by the imperialists to accelerate the sale of basic industrial products and high-tech consumer and producer goods and facilitate the exaction of higher profits, from financial "products" in addition to traditional commercial credit. It was therefore meant to accelerate the outflow of capital in the form of profit remittances and debt-service and to keep the client economies in continuous subjugation under the constant threat of financial insolvency and capital flight.

The financial policy of the Southeast Asian "emerging markets" allowed the foreign and local exporters to stash away export income abroad. Always trying to reduce their risks, exporters preferred to put their capital or a growing portion of their capital in the US and elsewhere abroad. This greatly worsened the trade and current accounts deficits. The free flow of capital made the client economies desperate and forced them to resort to short-term credit for covering the ever-growing trade and current accounts deficits.

To be comprehensive in holding accountable those responsible for the crisis, we have to recognize the entire structure of exploiters: the imperialist firms and banks at the top, the local exploiting classes and the reactionaries in power and their cronies.

Are the imperialists reckless in letting the Southeast Asian countries go on and on incurring deficits, increasing debts that they can never hope to pay back completely and running to the IMF for rescue whenever they suffer an economic and financial collapse?

No, the imperialists are quite cold and calculating in keeping the Southeast Asian client economies as debt peons. Through debt bondage, they aim to take over the natural resources and bankrupted firms of the nationals, further cheapen local labor and thereby maximize profits and continue to extract debt service from the ever-mounting accumulation of foreign debt.

Even before 1997, life was going from bad to worse for the entire nations and working people of Southeast Asia. The illusion of economic growth from year to year was conjured by the free flows of capital, especially speculative capital and by the conspicuous overconsumption of the upper and upper-middle classes.

The types of export products assigned to the Southeast Asian countries came under a sharpening crisis of overproduction. China and Southeast Asia (not to mention a few other countries elsewhere) were trying to out-export each other in the same types of export-oriented semimanufactures.

Since the crisis of 1997, the Southeast Asian countries have been afflicted by extremely high rates of unemployment and underemployment, bankruptcies and production cutbacks, decreased levels of income for the entire people rising prices of basic commodities, continuing currency devaluations and the breakdown of social services.

The number of people who subsist below the poverty line has increased tremendously. Ninety percent of the people in Southeast Asia are impoverished. Malnutrition, disease and illiteracy are rampant among them. To a great extent, even the middle social strata that benefited from previous business expansions have become impoverished

The economic and social crisis among the Southeast Asian client-states has led further on to political crisis. The entire region has become a hotbed of social discontent, bitter strife among the reactionaries and armed revolutionary movements.

The client states have become weak and unstable. Every ruling clique becomes detestable to the people by collecting higher taxes and fees in shrinking economies. It easily becomes exposed, isolated and hated by the people for puppetry, corruption, mendacity and repressiveness.

The long-running Suharto military fascist regime in Indonesia has been overthrown and the successors continue to be faced with worsening crisis. Centrifugal reactionary military, religious and ethnocentric forces are trying to fragment Indonesia. At the same time, the Communist Party of Indonesia has consolidated itself through the 8th Party Congress. The revolutionary mass movement is growing steadily on a nationwide scale.

The revolutionary movement in the Philippines under the leadership of the Communist Party of the Philippines continues to advance in the new-democratic revolution and to demonstrate to the people of Southeast Asia that waging people’s war and winning victories are possible even in a country that is in the stranglehold of US imperialism. Various forms of democratic struggle have developed vigorously in the Philippines. A broad united front of patriotic and progressive forces has toppled the Estrada regime and is giving nightmares to the incumbent regime.

The Southeast Asian countries that pioneered in the import-dependent export-oriented strategy as well as those that followed suit, including the Indochinese countries, continue to suffer from the global crisis of overproduction. They are in direr straits as the US economy itself has gone into a slump and had caused a global slump even before Southeast Asia can recover from the crisis of 1997.

The crisis conditions in the whole of Southeast Asia augurs well for the development of all forms of revolutionary struggle for national liberation and democracy against US imperialism and the local exploiting classes. In the decades to come, East Asia is bound to become the ground for a new powerful upsurge of the broad anti-imperialist movement and the world proletarian revolution.

Beyond the Southeast Asian Crisis of 1997

The crisis of Southeast Asia spread like a contagion to South Korea in last quarter of 1997. The same imperialist powers, multinational firms and banks and finance capitalists, involved in the Southeast Asian crisis, acted upon South Korea and further generated a crisis in Northeast Asia and the whole of East Asia. However, the South Korean economy has a character different from the Southeast Asian economies and has its own characteristic way of getting into financial crisis.

South Korea has an industrialized economy, dependent on Japanese finance capital. It produces basic steel, cars, home appliances and consumer electronics. These products are on a direct collision course with similar export products from the US, Japan and the European Union.

Before the crisis of 1997, the global crisis of overproduction in these products had gone on. South Korea had hoped that by taking large bank loans and expanding production, it could beat its competitors by exporting more and cheaper goods and thereby solve its problem. Ultimately, the banks became alarmed and panicked upon defaults by the South Korean firms and upon the impact of the Southeast Asian financial crisis.

As the country providing the largest amount of funds for the whole of East Asia, Japan was buffeted by the shockwaves from Southeast Asia and then from South Korea. Recession-stricken and stagnant for so long, after the bursting of its economic bubble in 1990, Japan was confronted with the further aggravation of its economic and financial problems as Southeast Asia and South Korea were unable to pay Japanese commercial loans.

Japan was also worried by the market contraction in Southeast Asia for goods produced at home and overseas by Japanese and South Korean firms. It was even more worried that the US monopoly firms and banks would take over the ailing and bankrupt South Korean firms and move further into a more weakened Japanese economy. Since then, the US has taken advantage of the economic and financial problems of Japan and South Korea to take over many of their firms.

China exercised capital controls in order to protect itself from the waves of financial crisis and currency devaluations in East Asia. It was expected to devalue its currency in order to head off the expected export advantage of the Southeast Asian countries in devaluing their domestic currencies.

But China did not devalue its currency. It was satisfied with the result of its currency devaluation of 1994 and was fearful of worse economic consequences in East Asia and the whole capitalist world. In fact, currency devaluations did not help the exports of Southeast Asia. They jacked up the cost of the imported equipment and components. Above all, the global crisis of overproduction in the types of goods exported by Southeast Asia has persisted.

Even then, the global capitalist economy has contracted since 1997. But this is concealed by the nominal growth figures of the US and Western Europe and by the inclusion of these in averaging global growth rates. These abstract growth rates also conceal the longrunning worsening economic ruin of the general run of third world countries and the regressive countries of the former Soviet bloc.

Before East Asia could recover, Russia and Brazil plunged into financial crisis in 1998 and early 1999 respectively, as a result of failure to pay outstanding debt obligations, which had mounted due to ever widening trade deficits. The crises in Russia and Brazil compounded to some extent the problems of the European Union due to the East Asian crisis.

While the economic and financial crisis spread from Southeast Asia to Northeast Asia in 1997 and further on to Russia and Brazil in 1998 and 1999, the US tried to buoy up the "emerging markets" with bailout funds from the IMF, World Bank, and the Group of 7 countries. It continued to benefit from the flow of funds to the US from Europe, Japan and the sunken "emerging markets".

Foreign funds were drawn to the US by high profits and rising market values of stocks (especially in high-tech corporations) and higher interests on bonds. They continued to subsidize US consumerism and the growing US trade deficits.

Capital became overconcentrated and overcentralized in the US. Assets were overvalued. The price-to-earning ratios stocks soared by hundreds and by the thousands of percent. Speculative capital rose too high above the level of productive capital in the real economy.

The US sang its own paean about having developed in the 1990s a "new economy" of high growth without inflation and with high employment, riding on the crest of high technology. By the year 2000, however, the US "high-tech" bubble had started to burst and the entire "new economy" started to collapse. The US was hit hard: from the inside and from the outside.

From the inside, the process of extracting surplus value from the US working class led to accumulation of capital. To maximize production and yet to counter the falling rate of profit, the monopoly bourgeoisie increased fixed capital (raw materials, equipment and facilities) and decreased variable capital for wages.

High technology increased social productivity while variable capital for wages declined. The problem for the monopoly bourgeoisie is that in trying to maximize profit by increasing fixed capital and decreasing variable capital, it ultimately reduces the purchasing power of the working people and contracts the market for its goods.

To increase capital beyond the existing capital plus realized profits from the sale of commodities, the monopoly bourgeoisie utilized bank loans, stocks, corporate bonds and derivatives both to stimulate production and to make money on money in a speculative way. Giant corporations and fly-by-night dotcom operators went berserk in raising fictitious capital and going into an imaginary or real expansion as well as mergers in the US and across the oceans.

Throughout the 1990s, the US made a make-believe world of boundless prosperity for the entire American people by drumming up high per capita income, by massacring regular jobs and replacing these with part-time jobs, by pushing overconsumption through consumer credit and by enticing more than 40 percent of the US population to become retail investors in the stock market.

But within the US, the process of maximizing profits and pushing down the real wage levels eventually resulted in a crisis of overproduction relative to the diminished purchasing power of the people. The large inventories led to production cutbacks, layoffs and bankruptcies.

Outside the US, the contraction of the global market due to the crisis of overproduction and financial meltdowns at first resulted in capital flight mainly to the US but ultimately the US has come under the heavy strain from the reduced exports and increasing trade deficits. The reduction of exports from the US has further resulted in lesser orders for other countries’ exports. Thus, a vicious circle works to contract the global market at a cumulative rate.

Since March 2000, the US stock market has plunged, with the high-tech laden NASDAQ falling more steeply than Dow Jones. Trillions of dollars have evaporated, especially in high-tech stock issues. Since October 2000, industrial production has also gone down. For more than two years already, the US has been in recession. The unemployment rate has reached 5.7 percent.

The contraction of the US market has resulted in deepening the prolonged recession of Japan and stagnation of Europe. Even in such developed countries, an increasing number of people are impoverished by mass layoffs and reduction of real incomes. The overwhelming majority of countries, especially those exporting raw materials and semimanufactures, have been pushed further down into a permanent condition of economic depression. They are ravaged by a growing mass unemployment, abrupt devaluations of currency, rising prices of basic commodities and loss of basic social services.

Since the adoption of the neoliberal policy stress, there has been a rapid concatenation of worsening crises: the debt crisis of Latin America and the rest of the third world starting in 1982, the October stockmarket crash of 1987, the bursting of Japan’s bubble in 1990, the Mexican peso fall of l995, the crisis of East Asia in 1997, the crisis of Russia and Brazil in 1998 and 1999, the prolonged crash of the US "new economy" from 2000 onwards and the bankruptcies of Argentina and Turkey in 2001-2002.

The current economic and financial crisis of the U.S. no less is serious and has far reaching consequences. It brings to a new depth the recurrent and worsening chronic crisis of overproduction and chronic financial crisis in the world capitalist system.

The Bush administration offers no solution to the US and global capitalist crisis but the aggravation of it by reinforcing so-called "free market" globalization with big tax exemptions for the giant corporations and stepped up military spending and military production.

The US is raving about its "war against terrorism". It is escalating military intervention and aggression unilaterally or in collaboration with the other imperialist powers and the client states. It is the No. 1 terrorist power in the world but it takes the guise of being anti-terrorist in carrying out brutal attacks against the revolutionary peoples, national liberation movements and countries assertive of independence.

Under the pressure of the crisis of overproduction and financial collapses, the mask of "free enterprise" has dropped from the face of US monopoly capitalism. The US has become conspicuously greedy in taking over foreign assets and increasingly protectionist against foreign competitors in the marketing of agricultural and industrial products.

So far, the US has been able to rouse and command other imperialist powers against the oppressed peoples and nations and likewise against countries or states assertive of national independence. But the other imperialist powers are increasingly becoming aware and resentful of the fact that the US grabs the lion’s share of the spoils of war.

As the crisis of the US and global capitalist economy worsens, the struggle for a redivision of the world among the imperialists is bound to intensify and further generate wars. But the working class will intensify the class struggle against the monopoly bourgeoisie and turn the imperialist war into a revolutionary civil war in order to establish socialism. The oppressed peoples and nations will wage wars of national liberation against imperialist wars of aggression and establish people’s democracies and socialism.#



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